Jerome Powell, however, is seen relatively open to the idea of banking deregulation, one of the focus areas of the Trump administration.
Jerome Powell has been appointed as the new US Federal Reserve Chairman, as was expected. He is currently a Federal Governor (appointed in 2012) and is seen as having views closer to outgoing Fed Chief Yellen on interest rate normalisation. From that perspective, a continuation of Yellen’s era of gradual increase in policy rates should be expected. Fed’s earlier projection indicates one more rate hike this calendar year and three rate hikes next year.
Powell, however, is seen relatively open to the idea of banking deregulation, one of the focus areas of the Trump administration. To that extent, some positive reaction is possible from US financials.
FOMC November meeting
The Federal Open Market Committee (FOMC) kept policy interest rates unchanged but provided a clear signal that it is on track to raise it in its next meeting scheduled December 13-14. As a result market implied probability from CME group (Chicago Mercantile Exchange) has increased to 100 percent. A quarter point rate hike, if it happens in December, would raise the target Fed funds' rate range to 1.25-1.50 percent. This would, incidentally, also be a two-year anniversary of the rate hike cycle that commenced in December 2015.
Central banks warming up globally
Across Atlantic as well, central banks are gearing up for normalization. Bank of England, raised benchmark interest rate to 0.5 percent from 0.25 percent owing to its concern on higher inflation. Brexit led weakness in the economy remains a key worry. Further, minutes of the meeting highlights rate hikes trajectory would be more gradual than anticipated by the markets. Due to this dovish outlook GBP (British Pound) reacted negatively.
Similarly, in the ECB meet recently, Draghi introduced their own version of “tapering” of bond purchase program. While this is another evidence of normalisation of monetary policy witnessed across the globe, it was short of expectation and hence, weighed on Euro.
So globally, central banks are gradually inching towards interest rate normalisation but in a gradual calibrated way.